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Sunday, May 23, 2010

Sunday updates

The number of stocks above their 50 day Moving Average is now only 8.6%, and although the trend is still looking down, we are quickly approaching that point where there should be a reversal.
The Summation Index is still accelerating downwards and has not shown any signs of slowing down as the distance between daily readings are large. Normally the SI will start to consolidate before a turn happens, signaling that a trend change is in the very near future. Notice the distance of the bars in a middle of the trend compared to the end?, Now notice the bars in the last few days? Not very bull friendly in my opinion.
This chart is the most interesting chart of the week-end for me, the McClellan Oscillator recorded its lowest reading in recent history (at least in the data base of Stockcharts), and quite possibly all time on Thursday. I put those green neon vertical lines on the chart at the point the price action bottomed, and found overwhelmingly that the MO records its lowest reading before the actual bottom of the price action. As the price action bottoms, the MO reading will diverge producing a low reading, but not a lower low. And as you can see from this chart, the MO has not diverged yet, leaving a high probability the market still has not bottomed.
This is the daily chart of the SPX with a variety of the most important technical indicators I use with-out any of the Elliott waves counts on it. If I had to pick only one chart to use, this one would be it. This chart is great for seeing the longer term view at the end of the day after spending the majority of the trading day watching the shorter-term charts.
On the RSI, I have found setting the period at 9 days, instead of the default 14 day period results in a more useful indicator on the daily chart, with the 14 day smoothing the signal just a little too much. I added the 14 day RSI here so you could see the comparison. If you were using the 14 period version you would of missed the negative divergence in late April, where the 9 day period clearly showed that the Relative Strength was waning in the last part of that rally, and showing signs a top was approaching. When using the RSI to help confirm the placement of Elliott wave labels, the most extreme reading is normally consistence with the end of the iii of 3 wave, and here again, the 14 period would have been misleading for laying out a correct count. And lastly, the 9 day period amplifies the signal more then the 14 day, giving higher highs, and lower lows and takes away the flat look of the smoother 14 day.
Back to what the chart is telling us, the PPO, MACD, and STO are all still showing strong sell signals, with the RSI showing a weaker sell signal. The SPX closed the week below the 200 day MA on increasing sell volume and inside of the Bollinger bands.
In order to get this back to bullish, we are going need to see the MACD and STO, to turn up with some positive readings in the histogram (those blue bars in the middle of the MACD indicator need to be above the center line), and with the black line leading the red line upwards on the STO. One of the first indications that the present down trend was in jeopardy would be the STO and RSI breaking above their trendline, and later confirmed by the slower moving MACD cross. For the longer term picture, having the 20 day cross the 50 day MA would also be bullish, as well as the price action breaking above the resistance of the 200 day MA, which is currently at 1102.89.
The short term trend still remains DOWN. Breaking above 1095.09 would be making a minor higher high and will move the trend to NEUTRAL, and breaking above 1119.03, could possibly change it to UP, depending on the internals of the market. That is, if the move was on increasing breadth and extreme buy volume with follow-thru to the upside. The count with the highest probabilities right now is we are finishing up wave i down(green) and only need one more squiggle down for the 5th(blue), before retracing the ii(green) wave up. I am still concerned with the recent sell-off only having seven waves down, and that it can be counted as a corrective wave at this point, so getting that final wave down is very important for the bearish count, other-wise it opens up the possibility that the whole sell-off was a corrective wave, with new highs to come. A second option if this current sell-off from 1073.57 is a corrective wave would be the 2nd wave up(green) is still ongoing, and this sell-off was only the "B" wave. That open gap up at the 1115 level would most likely be filled when the ii wave up tops.
** In case you missed Roy's week-end update, you can scroll down, or just Click here!!!


  1. Thanks for the update. Why do I get the feeling that those trendlines (STO and RSI) are pointing towards a more southerly destination before a bounce of more than two full trading days develops?

  2. "In case you are wondering, the answer is yes, this is a new record all-time low for the NYSE’s McClellan A-D Oscillator. That is, it is a record for the raw McClellan Oscillator. If we use the Ratio-Adjusted McClellan Oscillator (RAMO), which adjusts for the changing number of issues traded, then that number is -136. That is pretty close to the -141 that we saw in the crash of 1987, but it is a long way from the all time record low RAMO reading of -176.2 seen on Oct. 10, 1932."